Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.

If you believe that each trade is an independent event, and that there is no way to determine winners and losers in advance and you have a positive expectation trading system then anything that skips trades will:

Imaging a coin toss game where you paid me $1.20 for heads and I paid you $1 for tails - I'd be nuts to skip any chances to take that bet. On the other hand, the optimum number of bets for you to skip is all of them.

Yes - some people have tested this idea extensively. When thinking about this tactic, don't confuse skipping a trade with a rejection, and allowing a trade to work with zero size as the same thing. In one case the skip period is most often much shorter than the other, and it most often produces very different results. Also, notice which approach was used in one of the TBB Systems.

When fooling around with the Turtle system that is presupplied with Blox, I usually get results similar to the figure below.

The top line (the one with more trades) takes all entry signals. The bottom line "skips"** entry signals if the previous trade was a winner. In my testing, the Turtle system usually gets just a tiny bit better when this rule is enabled (bottom line) than when it is disabled (top line).

Play around with the Blox Turtle system for yourself, see what you discover. Be fearless, your computer isn't going to catch fire and spray hot acid in your eyes if you make a mistake. Experiment! Explore, innovate, and learn.

**Read the Blox User's Guide description (.pdf file) of the Turtle system for all the hairy details. Its Turtle system skips entry signals if the previous trade was a winner, but it also has a "Don't be a schmuck" provision to notice whether a skipped trade seems to be turning into a monstrous winner. If so it shrugs its shoulders and enters (very late) into the trade that was skipped. Read the manual for all the hairy details.

Good! It's often an excellent plan to replace a binary on/off switch, with a continuously variable "knob" that can assume all values between 0% ("all the way off") and 100% ("all the way on").

Another area to apply this is in Blox's "Trade Direction Portfolio Manager" which contains two binary on/off switches. You either take all Long trades (at full position size), or you skip them all (i.e. take them at zero position size). You either take all Short trades (at full position size), or you skip them all (i.e. take them at zero position size). How about replacing switches by continuously variable knobs? How about taking Long trades at position size X (0% <= X <= 100% of full size) and taking Short trades at position size Y (0% <= Y <= 100% of full size)? Those with a flair for algebra will notice that there is only one degree of freedom, namely the ratio of X to Y: (X/Y). Those without algebra, pay no attention to the man behind the curtain.

Advanced topic: If you follow Morpheus's advice to Neo ("Free Your Mind"), you can twist your knob starting from MINUS 100% (all the way on, IN THE OPPOSITE DIRECTION), rather than zero (all the way off). Liberating. In trading when you do the opposite of what is indicated, this is called "fading" the idea. You can twist the knob from 100% fade, to 0% (ignore), to 100% accept. And anywhere in between. Free your mind.

Philosophically, I dont like the "last trade winner" filter. But, maybe that's what makes it a good trading rule... "do what you want to do the least"

I added a time filter to it that makes it perform a little bit better. Although this adds yet another parameter, it actually makes me feel a little bit better about the rule since a time filter makes sense. This rule is attempting to capitalize on whipsawed traders, who cares if the last winning trade was 2 years ago?...

I've tested the idea on at least five different systems. It hasn't worked for me. I find it akin to looking at the past several outcomes on the roulette wheel. If there's an edge in your system, why wouldn't you take every trade? I suppose the idea is valid if you're trying to out-smart other system traders.

In my experience, the vast majority of traders use news and similar forms of information to make trade decisions.